fostering digital transformation of smes: a four levels
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Fostering Digital Transformation of SMEs:A Four Levels Approach
20B0164 Ahmad Afif Azhan Bin Haji Mahri21B6027 Afif Afwan Bin Mohamad Rezal21B0030 Amieziezaitul Syazlien Ezzeq Ezrynah Binti Amirul Syafiee21B6010 Md.Eddy Billah Amizul Qamar Bin Awg.Zole Kamar20B2076 Nurfarahiyah Amirah Binti Mohammad Yaakub
Introduction
● Digital technologies bring changes to different sectors that requires businesses to transform in order to meet the current demand
● Examples :○ Internet of things (IoTs)○ additive manufacturing○ big data, artificial intelligence○ cloud computing○ augmented and virtual reality
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● This breeds the era of Industry 4.0
● SMEs could implement it in their business faster and better as they are more:-○ Flexible○ Decentralize○ Small customer base○ Optimized decision making
■ Which are more affordable for SMEs.20B0164
● Industry 4.0 involves fundamental changes in○ configuration and
execution of business processes
○ operational routines○ organizational
capabilities
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● This makes it harder for SME to transition into Industry 4.0 as they may be limited in terms of:-○ resources○ cognitive assets○ business environment
■ Human resource■ Transaction capacity■ Decision support
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This paper analyzed digital transformation in SMEs undergoing the Smart Districts 4.0 project in Apulia, Southern Italy.● It also tries to see on how to
capture SMEs interest in accepting and implementing Digital Transformation
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The SMEs are divided into three business sectors:-○ Agri-Food○ Clothing-Footwear○ Mechanics-Mechatronics
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● Results show the limitations and problems that arise in implementing Digital Technologies into these SMEs.
● Achieving digital transformation in SMEs in the project requires 4 levels/phases.
● Other than technologies, human resource and networking is critical in transitioning into Industry 4.0 for SMEs
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Literature Background
Digital TransformationRepeating organisational process, which is
made up of additional and innovative changes.
Allows:
● Automatization of business process.● Making current logistical and administrative
business more efficient.
Helps the business to be more competitive(with the market).
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Despite its technological profile, it requires both of these abilities, in order to implement the process into the organisation, which are:
○ Ability to adapt current business model to new technologies.
○ Ability to lead technological innovations in the socio-technical environment.
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Digital Transformation
& Industry 4.0
● With the expanding scenario of digital transformation, the German government launched the concept of industry 4.0 as an initiative.
● This was done a with method of precaution towards long-term competitiveness of manufacturing industry.
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Industry 4.0Also known as
● Industrial Revolution 4.0● IR 4.0● Fourth Industrial
Revolution.
Described as a new industrial scenario where multiple, different emerging digital transformation, strengthened by Internet of Things (IoTs), allows for cyber-physical and intelligent systems.
This in turn can create value for the industrial activities.
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Internet of Things
The IoTs can be summarized up as physical objects that areconnected to the internet, where they are sharing and collecting data.
Due to the existence of digital platforms, existing industries face a transformation to a digitalized era.
All sorts of machines, devices, products can be associatedtogether, where they can adaptthemselves and be flexible to take immediate action to any marketchange.
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IoT and Its Influence in Industry 4.0
By integrating the physical(objects) and the DT in industrial manufacturing, Industry 4.0 focuses at establishing intelligent, self-regulating and interconnected industrial value creation.21B6027
The large adoption of DT for companies’ business process allows for the availability of smart machines, storage systems and production facilities, which can communicate with one another, initiate actions and mutually control each other.
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As a result of IoT in the companies, there are technological leaps in:
● Engineering● Manufacturing● Material Flow● Supply Chain Management
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As a result of the connectivity platform and DT,companies are able to interact digitallyand seamlessly, which in turn reduces(significantly) manual data processing.
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Three elements of digital transformation has been described in the article, where they are said to be the foundations for digital transformation.
Fundamentals for Digital Transformation
Digital Artifacts
Digital Infrastructure
Digital Platform
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Digital Artifacts
Defined as a digital component, application or media content, that is part of a new product / service and offers a specificfunctionality or value to the end-user.
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Digital Infrastructure
● Defined as digital technology tools and systems, which offer communication, collaboration and/or computing capabilities.
● Infrastructure, in general, refers to the basic physical and organizational structures needed for the operation of a society or organization. 21B6027
As digitalization brings basic information technologies and organizational structures,
digital infrastructures are considered as sociotechnical systems, which consists of
more than technology components.
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Dig
ital
Plat
form
● They are a shared, common set of services and architecture, which serves to host complementary offerings, including digital artifacts.
● Also defined as a software-based platform, that operates as the extensible codebase of a software-based system, which provides core functionality shared by the modules that interoperate with it and the interfaces, which they interoperate with.
● Example of this includes:○ Apple’s iOS ○ Mozilla’s Firefox browser. 21B6027
SMEs and The Government’s Role
For the Small and Medium Enterprises (SMEs):● Digital transformation is more concerned with
digitalization of the whole organization and business process.
● Its process requires an innovative cultural approach that can sustain radical changes of the companies’ organizational settings towards a complex path to digital configuration in the present and the future.
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The Government’s role:● They function as an orchestrator and funder
of initiatives (to the SMEs).● This role is in accordance with the general
recommendations from the European Union(EU) and other international institutions.
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Process of Implementing Digital Transformation
● The process of implementing digital transformation has been described to take a 4 stage path, that is:○ Exploration of digital transformation○ Development of digital initiatives○ Digital maturity○ Being a digital organization
● These paths are associated with a growing level of changes due to the introduction of digital transformation within the companies.
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Trend of Industry 4.0 in Italy
● The trend for industry 4.0 amongst the companies is that they are based on a technology-push innovation approach, as they come from the direct competitors from inside the product firm’s own industry.
● As a result from this approach, several scholars have stressed that this implies a radical business modelinnovation of manufacturing companies.
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Business Models
● As a sum of mechanisms and approaches for value creation, value offer and value capture, business models are interested in all their components by the process of digitization associated with Industry 4.0.
● Companies are able to achieve new opportunities and scenario of:○ Data-driven value creation○ New perspectives for servitization(industries using their products
to sell outcome as a service) for the innovation in the value offer.○ Larger opportunities for a more effective capture of the value
created based on an extensive connectivity.21B6027
Opportunities and Threats
● A high number of SMEs are active in niche markets, offering products manufactured in small series or individual basis.
● These companies frequently need basic versions of machinery and tools employed in the production facilities of large organizations.
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There exist critical factors for the success, which are identified as:
○ Commitment of a larger community of stakeholders and the need of adopting an industry-based perspective instead of the single company.
○ Cooperation with multipliers and intermediaries to better perform on target groups
○ Focus on specific business segments and scenarios, also through the identification of pilot projects to demonstrate the benefits of implementing digital transformation. 21B6027
Difference Between the Large Companies and the SMEs
Larger companies understand the opportunities and challenges of DT, while SMEs struggle in their process of DT.
● As a result of this, SMEs have taken a cautious approach to Industry 4.0, fearing that with higher involvement of the digital production process can bedetrimental to their business. 21B6027
Despite this, industry 4.0 has unprecedented developments for SMEs, due to their opportunities in participating in global digital supply chains.
Investigation in the technical fields, as well as the current research in industry 4.0 analyse how this industry value creation in manufacturing.
○ Example: How new technologies can be used to provide new services and product-service systems.
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RemarksThis article on academic investigation on Industry 4.0 mainly focuses on large enterprises, and only marginally on SMEs.
However, many of these large companies either act as suppliers to the SMEs, or have them as the suppliers.
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Research Method
Research Method● Qualitative approach based method● Due to the method of research an extremely rich amount of
qualitative data was collected for an in-depth analysis● Qualitative research is chosen because there are only a limited
number of cases that can be studied thereby making large scale quantitative based research inappropriate to be used in this context. Hence, the research is to be conducted in cases that are extreme that are more clearly recognized.
● Research is open ended leading to an interpretation of the data.
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Research ContextThe aim of the Smart District 4.0 project is to support the digital transformation of the SMEs operating in the three industrial sectors such as Agri-Food, Clothing-Footwear and Mechanics-Mechatronics.
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Data Collection and Analysis● Data collection from multiple sources and
combining those data via triangulation.● Data collected has been based on
secondary sources such as :● Archival Records, documentary information,
Smart District 4.0 web page and social networks accounts.
● The primary source of data are the interviews conducted with seven key informants which consist of those that are responsible such as the top managementand project managers.
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Data Collection and Analysis● Interviews were set up via email or
phone call where the interviewees are briefed about the goal and the main questions that will be asked during the interview.
● The face-to-face interview has a duration of 50 min per informant.
● After the interview, the answers are sent back to the informant for validation.
● The interviews were structured according to the following phases: plan, develop instruments, collect data,analyse data and disseminate findings.21B6010
FINDINGS
Allowed to comprehend the level of engagement towards the digital transformation of Apulian SMEs➢Agri-food➢Textile➢Clothing-Footwear➢Mechatronics-Mechanics industries.
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A four levels approach towards the digital
transformation:Level 1 - Digital AwarenessLevel 2 - Digital EnquirementLevel 3 - Digital CollaborationLevel 4 - Digital Transformation
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1) Level 1 - Digital Awareness:➔ grounded on the awareness about the potentiality of DT on SMEs.➔ participation of a larger and differentiated community of stakeholders➔ aimed at informing about the project and collecting subscriptions
1) Level 2 - Digital Enquirement:➔ the technological solutions presented in terms of functionalities
and potentialities to sensitize SMEs and all the other stakeholders➔ involved through workshop and focus group➔ modalities of SMEs engagement regard a more powerful interest of
SMEs in the project of DT
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3) Level 3 - Digital Collaboration:
➔ accompanied into an activity of exploration of the potential benefits of digitalization in their own business processes and strategies.
➔ Companies are engaged; they are allowed to use the G Suite (all Google workspace) to sustain their administrative and communication processes.
4) Level 4 - Digital Transformation:
➔ highest engagement that sees a limited number of SMEs interested in
➔ the technologies made available are mainly digital solutions
➔ more relevant impact on the company’s (such as strategic and organizational issue)
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The Levels of Engagement Towards Digital Transformation of Apulian SMEs
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A. The first level of engagement: ● was oriented (to date) to a
sample of about 1,000 enterprises
● contacted by phone or by email
● Digital technologies adopted -No technologies
● Awareness about the adoption of digital technologies in different industries
● Expected output - financedby the Italian ministry of economic development
B. The second level of engagement:
● adherents SMEs agree to participate in focus groups
● Digital technologies impact-haring of digital goals attainment and best practices
● Expected output -Awareness of the available tools for digitization
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C. The third level of engagement:
● Modalities of SMEs engagement- Subscription of collaboration platform licences
● Benefits of training sessions and assistance with a remote support service 24/7
● Trust amongst the network composed by suppliers
● Change management (in the way of working and collaboration between business functions)
D. The fourth level of engagement:
● Analysis of➔ Business models➔ Process maps➔ Development of a customized digitization
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Digital Transformations In the Pilot Cases
★ The pilots identified to date are located:❖ Two in the Agro–Food chain
● Overall Supply Chain Traceability (blockchain)● IoT for Precision Farming(Dashboard and
Analytics; DSS)❖ One in the Textile–Clothing–Footwear sector
● application of IoT for Product–Service based on wearable devices (IoT and Service Platform).
❖ One in the Mechatronics–Mechanic industry● IoT for Product Predictive Maintenance
(Dashboard and Analytics; DSS)
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1. The first pilot (Agro–Food)➔ Overall business process traceability➔ Industry: Agri–food➔ Pilot SMEs: Producer, packer and distributor of meat
+ large-scale distributor➔ Digital transformation intervention: Transfer the
information to process manufacturing suffered➔ Type of digital technology: Blockchain
2.The second pilot (Agro–Food)➔ Precision farming➔ Industry: Agri–food➔ Pilot SMEs: Energy plants powered by renewable
sources Installer➔ Digital transformation intervention: Connection of
the pilot and the sensor network an Smart District 4.0 platform
➔ Type of digital technology: IoT and Big Data Analysis21B0030
3.The third pilot (Clothing–Footwear)➔ Product-service based on wearable
devices➔ Industry:Textile–clothing–footwear➔ Pilot SMEs: Manufacturer of workwear
+ manufacturer of products and technologies for the improvement of the quality of life
➔ Digital transformation intervention:Developing DPI smart prototype perfectly integrable with the various sensor system
➔ Type of digital technology: IoT and Big Data Analysis
4.The fourth pilot (Mechatronics)➔ Predictive maintenance➔ Industry:Mechatronics–mechanics ➔ Pilot SMEs:Leader in processing and
handling of polyurethane foam, polyester fibre and fabrics
➔ Digital transformation intervention:Identification of one or more parameters that are measured and extrapolated
➔ Type of digital technology: IoT and Big Data Analysis
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Discussions
● SME is understood to be limited by research and development, and implementation when trying to implement digitalization
● The 4 levels from Smart District 4.0 prove as an adaptable and attainable process in SMEs DT
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The phases implementedin the project may enableSMEs to● Grow commitment and
awareness on the benefits of digitalization
● Exist in digital business roadmap
● Make them more competitive in Industry 4.0 20B0164
Issues regarding SMEs and digitalizations could be their reluctant to changes.
Growth of SMEs in digitalization is also dependant on three elements of technologies they adopt
○ Digital artifacts ■ Infographic■ Video■ Website■ Software/Application■ Media
○ Digital infrastructures■ Cloud computing■ Data analytics■ Social media and online
communities
○ Digital platforms■ IOS Android■ Operating
system■ Software
ecosystem
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Conclusions
● Smart District 4.0 is an ongoing pivotal initiative.
● Aimed to sustain the process of digitalization into the Apulian SMEs.
● Specific focus:1. Agri-Food2. Clothing-Footwear3. Mechanics-Mechatronics
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An extreme case study.To characterized their study with novelty and originality, Small District 4.0 has allowed to:1. Derive useful insights for the advancement of
the debate on the challenges and opportunities of digital transformation in SMEs.
2. Identify limitations affecting this process and critical areas of interventions.
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Smart District 4.0 conceived as:1. A strategic project with meaningful relevance for regional SMEs
2. A lever for the reinforcement of the competitiveness and innovation performances of the region
3. Its successful positioning into the industrial patterns of the so-called Industry 4.0 phenomenon
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Showed importance of networking into the achievement of a process of digital transformation.Critical for successful transition towards digital configuration (in coherence with Industry 4.0) has been the human and social capitals, despite technology being essential in the process of digitization.
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Further elements of strengths of this case and features of novelty in the debate on the Industry 4.0:1. Focus on single SME as node of a larger regional
value chain.2. Involvement of industrial and research
organizations.3. Principles of networking and community
buildings.The process of collaborative and ecosystem is coherent with characteristics of aspirational digital phase.
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Implications for TheoryImplications for theory arise at theintersection of research streamsfocused on regional development,innovation ecosystems and digitaltransformation. All these itemsdisclose new roots for thedevelopment of across disciplinaryresearch agenda.
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Implications for PracticesImplications arise for the agenda of
policy makers in terms of definition of strategic goals and
implementing initiatives with specific contextualization
resulting from the correlation with regional and industrial features.
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Limitations and Future ResearchThis research present some limitations for future research.
Limitations:
1. The preliminary evidences associated to the current stage of the Smart District 4.0 project.2. Context analysed in terms of SMEs , industrialdomains and regional dimension.
3. The need to develop an ad hoc dashboard or key performance indicators to assess the achievement of the SMEs towards the digital transformation.
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Q&A
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